Kate Andrews

Will furlough be extended?

Will furlough be extended?
Chancellor Rishi Sunak visiting the Emma Bridgewater ceramics factory earlier this month (Credit: UK Treasury)
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When Chancellor Rishi Sunak extended the furlough scheme back in May, he committed more support than anyone expected. In June and July, the government continued to pay 80 per cent of employee wages (with a cap of £2,500 per month) and has also picked up the majority of the tab in August and September. 

But as the scheme comes to an end after 31 October, calls have grown louder for it to be extended again. So far Sunak has been adamant that it won’t be, telling the House of Commons in July that it could not continue forever. But, as with many Covid-19 policies over the past six months, it appears this may be about to change.

The Treasury is working on proposals to extend subsidies for workers’ wages, according to reports in the Financial Times. It’s thought that updated measures could see the state top up the salaries of employees who are only able to work part-time. On the media rounds this morning, Foreign Secretary Dominic Raab suggested that the Chancellor is considering targeted financial assistance for ‘specific sectors’. 

A move from an all-inclusive offer of wage subsidies to targetted industries would be a meaningful shift in the policy, with businesses most heavily impacted by the new restrictions becoming the focus of the scheme. There is a clear distinction between businesses that can operate legally during certain hours — or operate at all — and businesses that cannot, which is perhaps why the Chancellor is considering ‘creative’ ways to make sure they still have access to financial support.

Yet extension of furlough for even these businesses still falls prey to criticisms over indefinite government payment of workers’ wages. This a criticism that Sunak himself is all too aware of, telling fellow MPs earlier this year that ‘leaving the furlough scheme open forever gives people false hope that it will always be possible to return to the jobs they had before’.

With around 9.3 million workers furloughed at the height of the crisis, an estimated 3.4 million are still having their wages paid by the state. Sadly, it’s more or less certain that when the scheme officially comes to an end, many will discover that their job no longer exists, as consumer demands have shifted and many businesses simply can’t operate as they did before. Extending the furlough scheme again — especially without any guarantee of when a vaccine or treatment could get society back to normal — prolongs the period in which employees are in the dark about their future, and delays their transition into new lines of work.

And then there’s the cost: furlough has been the central piece of the government’s public policy strategy to keep the economy afloat — but it has been the most expensive scheme too, so far costing over £39.3 billion out of the £210 billion plus that has been spent on Covid measures since March. A reduction in the number of companies eligible to use it would reduce its cost, but depending on how long it continued for, the government would still be borrowing billions of pounds to finance wages.

But it looks like the Chancellor may get access to the cash. Yesterday, the governor of the Bank of England Andrew Bailey signalled that he has undergone something of a change of heart: having previously supported the scheme's conclusion in October, he said it was now time to ‘rethink’ that plan, especially for specific sectors. The Bank of England's support is vital for the scheme’s extension, as the Bank has acted as the Treasury’s financial lifeline during the crisis, directly financing government to make sure it could bring in all the support measures necessary to tackle Covid-19.